5.2) New Developments: Blockchain

Question 1

What is the problem with traditional banking system?

Answer 1

Traditional financial systems rely on central authorities (banks) to verify transactions and maintain trust.

Question 2

What are the system limitations? (3)

Answer 2

• Single Point of Failure: Centralized systems are vulnerable to outages or manipulation by the central authority.
• Lack of Transparency: Users often have limited visibility into how their transactions are processed and verified.
• High Fees: Traditional financial institutions can charge high fees for processing transactions.

Question 3

How does blockchain technology emerge as a potential solution to these problems? (4)

Answer 3

• Decentralization: No single entity controls the network. Transactions are verified and recorded by a distributed network of computers, eliminating the need for a central authority.
• Security: Cryptographic techniques ensure the integrity and immutability of data stored on the blockchain. Once a transaction is recorded, it cannot be altered or deleted.
• Transparency: All transactions are publicly viewable on the blockchain, promoting transparency and trust.
• Reduced Costs: By eliminating the need for intermediaries, blockchain has the potential to reduce transaction costs.

Question 4

What is the evolution and history of blockchain? (6)

Answer 4

Question 5

What is the Merkel tree?

Answer 5

The Merkle tree, a method to verify individual records, named after
computer scientist and mathematician Ralph Merkle (PhD dissertation at
Standford).

Question 6

Who invented ‘digital cash’?

Answer 6

David Chaum PhD dissertation at the University of California, Berkeley – a
method of how to establish & maintain trust in a computer system. Later invented Digital Cash.

Question 7

• Stuart Haber and W. Scott Stornetta published an article describing how
  to ____________ digital documents to prevent users from backdating or
  forward-dating electronic documents using Merkle Trees.

Answer 7

timestamp

Question 8

Cynthia Dwork and Moni Naor (‘93), Adam Black (’97), Markus Jakobsson
and Ari Juels (1999) all made significant contributions to the concept of Proof of ______ (a consensus mechanism to validate transactions)

Answer 8

Work

Question 9

What did Stefan Konst develop and what did it prove?

Answer 9

Stefan Konst introduced the concept of cryptographically secured chains, which helps prove the authenticity of transactions in a blockchain

Question 10

What did Hal Finney invent?

Answer 10

• Hal Finney introduced reusable PoW, a mechanism for receiving a nonexchangeable – or non-fungible – hashcash token.

Question 11

Who invented Cyryptocurrency?

Answer 11

Satoshi Nakamoto, believed to be a pseudonym used by an
individual, or perhaps a group of individuals, published a
white paper in 2008 introducing the concept of cryptocurrency and blockchain and helped develop the first Bitcoin software

Question 12

What are some facts about bitcoin and Nakamoto? (5)

Answer 12

• Bitcoin was worth less than a penny then. Nakamoto mined
  the first Bitcoin block (containing 50 bitcoin), validating the
  blockchain concept.
• The first Bitcoin transaction took place when Nakamoto
  sent Hal Finney 10 bitcoin in block 170 in 2009.
• Nakamoto set up a system to ensure the number of bitcoin
  mined won’t ever exceed 21 million
• On May 22 of 2010, Bitcoin made history when a
  programmer Laszlo Hanyecz paid 10,000 bitcoin for two delivered Papa John’s pizzas. The two pizzas back then
  were valued at about $40, a transaction that would balloon
  to a value of more than $260 million+ at today’s bitcoin
  price level.
• Satoshi Nakamoto disappeared around 2011. Even today,
  no one knows who OR what Satoshi Nakamoto is!!

Question 13

What is the crux of blockchain? (2)

Answer 13

• Blockchain is a method of recording information that makes it impossible or difficult for the system to
  be changed, hacked, or manipulated
• A blockchain is a decentralized and distributed ledger that duplicates and distributes transactions
  across the network of computers participating in the blockchain.

Question 14

What is a ‘digital ledger’?

Answer 14

It is a structure, or a block of chains, that stores transactional records, also known as “the block”, of the
public in several databases, known as the “chain,” in a network connected through peer-to-peer nodes.
Typically, this storage is referred to as a ‘digital ledger.’

Question 15

What are the key functions or features of blockchain technology? (4)

Answer 15

• It uses a digital signature feature to conduct fraud-free transactions making it impossible to corrupt or
  change the data of an individual by the other users without a specific digital signature (Highly Secure).
• Blockchain transactions are done with the mutual consensus of users resulting in smoother, safer, and
  faster transactions (Decentralized).
• Blockchains are programmable and can generate systematic actions, events, and payments automatically when the criteria of the trigger are met (Dynamic and allows Automation)
• Once a piece of information is recorded on a blockchain, it becomes permanent and cannot be deleted or modified. This immutability is a core feature of blockchain technology and contributes to its security
  and reliability

Question 16

What does it mean that bitcoin is decentralized network infastructure? (4)

Answer 16

• In the traditional financial system, a
  central authority (like a bank) controls
  everything e.g. approving transactions, managing accounts, and
  dictating monetary policy.
• Bitcoin flips this model on its head. It
  is a decentralized system, meaning there is no single entity in control.
• To achieve decentralization, Bitcoin
  relies on a distributed network of
  computers around the world called
  nodes.
• The distributed network infrastructure
  provides the physical foundation for
  Bitcoin’s decentralized operation. It
  allows for geographically dispersed
  nodes to work together and maintain
  a secure and tamper-proof ledger system without a central authority.

Question 17

What are the differences bvetween cryptocurreny and real money? (6)

Answer 17

Question 18

What is the design and structure of blockchains? (3)

Answer 18

Block n-1
Block n
Block n+1

Question 19

What is a node?

Answer 19

Nodes are network participants and their devices permit them to keep track of the distributed ledger and serve as communication hubs in various network tasks. A block broadcasts all the network nodes when a miner looks to add a new block in transactions to the blockchain.

Question 20

What are transactions?

Answer 20

A transaction refers to a contract or agreement and transfers of assets between parties. The asset is typically cash or property. The network of computers in blockchain stores the transactional data as copy with the storage typically referred to
as a digital ledger.

Question 21

What is a block?

Answer 21

A block in a blockchain network is similar to a link in a chain. In the field of cryptocurrency, blocks are like records that store transactions like a record book, and those are encrypted into a hash tree. There are a huge number of transactions occurring every day in the world. It is important for the users to keep track of those transactions, and they do it with the help of a block structure. The block structure of the blockchain is mentioned in the very first diagram in this article.

Question 22

What is a chain?

Answer 22

Chain is the concept where all the blocks are connected with the help of a chain in the whole blockchain structure in the world. And those blocks are connected with the help of the previous block hash and it indicates a chaining structure.

Question 23

Who are blockchain minners?

Answer 23

Blockchain mining is a process that validates every step in the transactions while operating all cryptocurrencies. People involved in this mining they called miners. Blockchain mining is a process to validate each step in the transactions while operating cryptocurrencies.

Question 24

What is the consensus?

Answer 24

A consensus is a fault-tolerant mechanism that is used in computer and blockchain systems to achieve the necessary agreement on a single state of the network among distributed processes or multi-agent systems, such as with cryptocurrencies. It is useful in record keeping and other things.

Question 25

What is a header?

Answer 25

It is used to identify the particular block in the entire blockchain. It handles all blocks in the blockchain. A block header is hashed periodically by miners by changing the nonce value as part of normal mining activity, also Three sets of block metadata are contained in the block header.

Question 26

What is a previous block address/hash?

Answer 26

It is used to connect the
i+1th block to the i th block using the hash. In short, it is a reference
to the hash of the previous (parent) block in the chain.

Question 27

What is a timestamp?

Answer 27

It is a system verify the data into the block and assigns a time or date of creation for digital documents. The timestamp is a string of characters that uniquely identifies the document or event and indicates when it was created.

Question 28

What is a nonce?

Answer 28

A nonce number which uses only once. It is a central part of the proof of work in the block. It is compared to the live target if it is smaller or equal to the current target. People who mine, test, and eliminate many Nonce per second until they find that Valuable Nonce is valid.

Question 29

What is a merkel root?

Answer 29

It is a type of data structure frame of different blocks of data. A Merkle Tree stores all the transactions in a block by producing a digital fingerprint of the entire transaction. It allows the users to verify whether a transaction can be included in a block or not.

Question 30

What are the key characteristics of blockchain architecture? (6)

Answer 30

• Decentralization: A third party is not needed in the blockchain. Consensus algorithms in
  blockchain are used to maintain data stability in a decentralized network.
• Persistency: It is not possible to delete or roll back transactions once they are included in the
  blockchain network. Invalid transactions do not carry forward further.
• Anonymity: Each user can interact with the blockchain with a generated address, which does not
  disclose the real identity of the miner.
• Auditability: Transactions can be easily tracked and not harmed between transactions.
• Transparency: The transparency of blockchain is like cryptocurrency, in bitcoin for tracking every transaction is done by the address. And for security, it hides the person’s identity between and after the transaction. All the transactions are made by the owner of the block associated with the
  address, this process is transparent and there is no loss for anyone who is involved in this
  transaction.
• Cryptography: The blockchain concept is fully based on security and for that, all the blocks on the blockchain network want to be secure. And for security, it implements cryptography and secures the data using the cipher text and ciphers.

Question 31

How do blockchain transactions work? (6)

Answer 31

Question 32

What are the types of blockchain architecture? (4)

Answer 32

1. Public Blockchains: Open to anyone who wants to participate. They are decentralized,
   transparent, and immutable, making them ideal for applications that require a high level of security and trust. Require no permision
2. Private blockchains: Only accessible to a select group of individuals or organizations. They are typically used for applications that require a more closed and controlled environment.
   Requires permission
3. Hybrid blockchains: Controlled by an authority with some permissionless processes
4. Consortium blockchains: Similar to private blockchains are more decentralized than private blockchains. They lack flexibility due to the control by the controlling group

Question 33

What are the different types of consensus mechanisms? (4)

Answer 33

• Proof of Work (PoW): Proof of Work required a stakeholder node to prove that the work is done and submitted by them certifying them to receive the right to add new transactions in the blockchain.
• Proof of Stake (PoS): The proof of Stake is also a common consensus algorithm that evolved as a low-cost low-energy-consuming, low-energy- consuming alternative for the PoW algorithm. For providing the responsibilities the public ledger provides by the virtual currency token like Bitcoin and Ethereum.
• Proof of Capacity (PoC): Proof of Capacity (PoC) allow sharing of memory space of the nodes in the blockchain network.
• Proof of Elapsed Time (PoET): It encrypts the passage of time cryptographically to reach an agreement without expending many resources.

Question 34

How is blockchain used in different industrial and technical areas? (5)

Answer 34

• ID2020 providing proof of identity for people without documents
• Electronic voting: The Follow My Vote for anonymous online voting
• Authorship: Ascribe preserves authorship of artists
• Medicine: Medrec providing secure and transparent access to medical records
• Supply chains: Blockverify transparency in the supply chain industry

Question 35

How does pick n pay acctept bitcoin payments?

Answer 35

• CryptoConvert announced that its CryptoQR platform is now active at all Pick n Pay stores around South Africa, allowing shoppers to pay with Bitcoin using the Lightning
  network.
• Pick n Pay partnered with Electrum and CryptoConvert to develop the system.
• Electrum’s payment platform connects CryptoConvert and Pick n Pay, letting customers pay with the Bitcoin Lightning technology at the till point.
• Electroneum is a mobile payment platform that uses blockchain technology to enable instant payments and micropayments. (2 February 2023)